Three members of the pop group Take That are among around 1,000 investors who potentially face large tax bills after HMRC won a landmark tribunal ruling on the Icebreaker partnership scheme, which the First Tier Tribunal (FTT) ruled was set up specifically to shelter over £330m from tax
Gary Barlow, Howard Donald and Mark Owen and manager Jonathan Wild all put money into the Larkdale partnership, which was one of 51 similar partnerships set up to make use of tax reliefs for the creative industries.
The three invested £66m in music industry investment schemes set up by Icebreaker Management which shortly afterwards reported losses of £25m. These losses were then used to avoid tax on around £63m they earned from world tour and CD sales following their 2005 reunion. They are said to be considering undertaking a world tour late this year to raise the estimated £30m they owe in tax as a result of the scheme’s failure.
In the FTT tribunal decision Judge Colin Bishopp ruled that: ‘The underlying, and fundamental, conclusion we have reached is that the Icebreaker scheme is, and was known and understood by all concerned to be, a tax avoidance scheme.’
Bishopp said the partnerships were carrying on the trade of the exploitation of intellectual property rights, with investments in obscure pop groups, publishing and also the sale of ‘personal alarms’, but that their main aim was to secure tax relief for members. He found that Icebreaker members inflated investments through ‘entirely circular’ loans as a means of offsetting losses against other tax bills, while none of the partnership made any profit.
‘We are, indeed, quite satisfied that no serious and even moderately sophisticated investor, or one with a competent adviser, genuinely seeking a profit, even one willing to engage in a high-risk venture, but unmindful of any possible tax advantage, would rationally have chosen an Icebreaker partnership,’ Bishopp said.
A spokesman for Icebreaker said: ‘Icebreaker Management is extremely disappointed with this decision since it puts a valuable source of funding for the UK’s independent music industry in jeopardy. Icebreaker will review the full decision and consider all the LLPs’ options including appeal.’
An HMRC spokesman said: ‘We have put in place generous reliefs to support genuine business investment and our tax reliefs for the creative industries work well, enabling the UK's world-class film, television and video production companies to compete on the global stage. But we will not tolerate abuse of the system by people trying to dodge their tax obligations.’
The three Take That members have not yet commented on the ruling.
Commenting on the ruling, a Rebus Investment Solutions’ spokesman said: ‘The ruling will have a catastrophic impact on the 950 investors who are partners in these schemes as this ruling will enable HMRC to issue demands for repayment of any tax reliefs paid. This case will also affect other similar schemes, as HMRC can now rely on this decision when issuing Follower Notices, which may come into effect this summer.’
Rebus added that the case is unlikely to win at appeal as ‘the main purpose of entering into the arrangements was to secure sideways loss relief in order to avoid tax’. It will also face hurdles in light of the government’s recent clampdown on avoidance schemes announced in Budget 2014.
